Download Presentation: State-Owned Enterprises and U.S.

State-Owned Enterprises
and U.S.-China Relations
Rory MacFarquhar
Visiting Fellow
Peterson Institute for International Economics
February 7, 2017
2/7/2017
Peterson Institute for International Economics | 1750 Massachusetts Ave., NW | Washington, DC 20036
1
China’s SOEs, Our Problem
• Chinese SOEs are more indebted, less profitable and less productive
than private firms - but reforms adrift due to Communist Party ideology
and vested interests
• Failure to reform SOEs is not only a domestic problem for China: China’s
SOEs inhibit international rebalancing, distort the competitive playing
field, and their outward investment may raise national security concerns
for the United States
• Two classes of policy levers:
– International trade and investment disciplines to induce China to reform
– U.S. domestic restrictions to limit spillovers to the US market
SOEs inhibit rebalancing
•
•
•
•
SOE retained earnings contribute
to excess national saving, current
account surpluses, and capital
outflows
SOE profits are largely retained or
redistributed to other SOEs, not
remitted to the Finance Ministry
2013 Third Plenum Decision: by
2020, 30% of SOE dividends to be
transferred to the budget
…but share of profits paid as
dividends remains low
% GDP
National Saving still close to 50% of GDP
60.0
50.0
40.0
Government + corporate
30.0
20.0
Households
10.0
0.0
2000
2002
2004
2006
2008
2010
2012
2014
SOEs distort trade
• SOEs in China enjoy privileged regulatory treatment, access to lowcost financing by state-owned banks, and underpriced factor inputs
• …though well-connected private businesses also enjoy “national
champion” or “local champion” status
• Soft budget constraints avert exit by loss-making SOEs in sectors
with excess capacity, forcing the adjustment on others
• SOE collusion can affect behavior in the US market
• Distorted competitive playing field hurts foreign companies, not only
in China but also in their home markets
SOEs raise national security
concerns
•
China asserts that SOE FDI is
commercial, though some deals
defy business logic
•
SOE investment represents
diminishing share of Chinese FDI
in the United States…
•
…but China’s interest in
maintaining investment access
gives the US leverage
•
CFIUS already required to
scrutinize “foreign government
transactions”; now, there are
increasing calls for outright ban
Chinese FDI in the United States
Policy Options
• Two broad approaches to China’s SOEs:
 Encourage China to accelerate SOE reforms, including through WTO litigation
and negotiating new bilateral (e.g., US-China BIT) and multilateral (e.g., TPP)
trade and investment disciplines
 Limit the spillover impact of China’s domestic distortions on the United States, for
example through aggressive use of domestic trade remedies (AD/CVDs),
competition policy, and scrutiny of inward FDI by Chinese SOEs
• Obama Administration deployed both approaches
• Early Trump Administration rhetoric suggests domestic enforcement
will dominate – but Chinese backlash could strengthen opponents
of reform